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TRADE DISPUTEU.S. Steel Tariffs and Countermeasures

Background

On March 8, 2018, the government of the United States issued proclamations that duties of 25% would be placed on all steel imports into the U.S. and 10% on all aluminum imports. The tariffs were being imposed on the grounds of national security in accordance with Section 232 of the Trade Expansion Act of 1962.

However, the Department of Commerce issued temporary exemptions on the tariffs for a number of trade partners, including Canada, Mexico, the European Union, Australia, Brazil and several others. All other countries, including Russia, China, Turkey and others took effect on March 23, 2018.

The exemptions issued had an expiry date of June 1, 2018 to provide additional time for negotiation with the EU and the potential conclusion of negotiations with Canada and Mexico around the North American Free Trade Agreement (NAFTA). In the interim period, the government had successfully negotiated new terms of trade for steel and aluminum products with several countries, but not with key steel importers such asthe EU, Canada, and Mexico. Therefore, on June 1st, the U.S. government removed its exemptions, applying the tariffs to imports of steel and aluminum from those trading partners.

The EU, Canada, and Mexico denounced the decision noting they were critical allies of the U.S. and not a national security threat. All three also announced they would be putting forward countermeasures to equally penalize U.S. industries. The EU further noted it would be taking the matter to a World Trade Organization dispute resolution arbitration.

For more specific information about the impact of the U.S. tariffs and what U.S. importers of steel and aluminum need to know, please click here.

For an extensive FAQ regarding U.S. tariffs on steel and aluminum imports, please click here.

Canadian Countermeasures

In response to the lifting of U.S. exemptions on Canadian steel and aluminum imports, the government of Canada immediately announced a long list of tariffs of 25% and 10% on approximately $16 billion of U.S. imports (comparable to the value of Canadian steel and aluminum exports to the U.S.) that would take effect on July 1, 2018 after a brief public consultation period. The list includes numerous metal products, but also a substantial number of consumer goods.

Political observers have suggested the list of counter-tariffs was strategically compiled to create economic hardship in key U.S. constituencies whose Congressional representatives are influential to the president and/or the balance of power in Congress with the hope they could persuade the administration to reconsider.

The U.S. is currently investigating the possibility of imposing a 25% tariff on Canadian auto imports under Section 232 of the Trade Expansion Act of 1962, the same act under which the steel and aluminum tariffs were imposed.

Surtax Relief & Quotas

In early October 2018, the government of Canada announcedsignificant amendments to the countermeasures imposed on U.S. steel and aluminum, including the opportunity for importers to apply for one-off exemptions based on exceptional circumstances such as a shortage of domestic supply.

In addition, the government released two lists of products to which surtax relief would be applied retroactive to July 1, 2018 when the surtaxes were first applied. One list of products provided indefinite surtax relief; the other provided surtax relief for a defined period ending December 31, 2018.

The surtax relief was being provided with the understanding that supply chains in North America were tightly integrated and that some businesses in Canada were being impacted by the application of surtaxes on certain imported steel products.

At the same time the government made the announcement surrounding surtax relief, it also announcedit would be imposing quotas on imports of select steel product categories, including:

Heavy plate

Concrete reinforcing bar

Energy tubular products

Hot-rolled sheet

Pre-painted steel

Stainless steel wire

Wire rod

The quotas are based on volumes considered normal on a historical basis. Volumes that exceed historically normal levels will be subject to a 25% surtax.

In addition, an import permit will be required to bring into Canada goods that fall under these product categories during the quota period. Once the quota has been reached, the 25% surtax will apply and permits will no longer be granted until the quota period renews.

The quotas are being implemented to safeguard against the offloading of steel surpluses on international markets resulting from the imposition of tariffs on steel and aluminum imports into the U.S.

To download the lists outlining the products for which surtax relief is being provided, please click here.

To download a full list of product classifications affected by Canada’s surtax countermeasures, please click here.

Mexican Countermeasures

On June 5, 2018, Mexico announced it would impose tariffs of between 7% and 25% on $650 million in U.S. imports into Mexico that would take effect immediately. The list of affected imports includes agricultural goods, metal products and other industrial goods.

Similar to U.S. products targeted by the Canadian government, observers suggest Mexico’s list of retaliatory tariffs are designed to harm key U.S. congressional districts to create discontent with the U.S. trade measures in Congress and put pressure on the president to reconsider.

For a list of the U.S. products to which the Mexican tariffs will apply, please click here.

European Reaction

On June 6, 2018, the European Union officially announced it would impose tariffs on €2.8 billion worth of U.S. imports to take effect in July 2018. On June 20, the EU Trade Commissioner announced the full list of EU tariffs, which totalled $3.4 billion in U.S. imports and included iconic American products, such as bourbon whiskey, motorcycles and orange juice.

Shortly after the tariffs were announced, motorcycle manufacturer Harley Davidson stated publicly it would be forced to offshore current U.S. production of EU-bound motorcycles to avoid the EU tariffs.

The U.S. is currently investigating the possibility of imposing a 20% tariff on EU auto imports under Section 232 of the Trade Expansion Act of 1962, the same act under which the steel and aluminum tariffs were imposed.

Livingston will continue to monitor the situation and provide updates regarding specific U.S. products affected by EU countermeasures.

For a full list of U.S. products on which the EU has imposted tariffs, please click here.

Internal U.S. Reaction

The announcement that the U.S. was lifting its exemptions on steel and aluminum tariffs was met with widespread discontent within government, industry and labor circles.

Congressional Republicans, including House Speaker Paul Ryan denounced the move as being counterproductive to U.S. interests. House Ways & Means Chairman Kevin Chambers expressed similar sentiment as did Lamar Alexander, chairman of the Senate’s Health, Education, Labor and Pensions Committee.

Many members or Congress were caught off guard by the decision to remove exemptions. As a result, Republican Senator Bob Corker unveiled on June 6, 2018 legislation that would require Congress to approve any trade actions by the president that are being carried out on the grounds of national security. However, Senate Republicans blocked a vote on the bill.

Despite the intent of the tariffs being to protect America’s national steel and aluminum industries and their workers, the United Steel Workers – the largest union representing industrial workers – released a statement objecting to the lifting of exemptions.

Industry groups – particularly those for which steel and aluminum are critical materials – had long been lobbying Washington to reconsider the imposition of tariffs, noting they would be forced to pass the additional cost along to consumers.

Industry groups and members of Congress have also expressed concern that the tariffs will sour relations between the U.S. and key trading partners, leading to a prolonged renegotiation of NAFTA (which has already been under renegotiation for almost one year) and a further setback of trade talks with the EU.

Despite the opposition, the U.S. administration has remained resolute in its decision to impose the tariffs and has not yet suggested it will reconsider the tariffs or lower them.

Supporting our customers’ needs

Livingston will continue to monitor the progress of discussions regarding the trade dispute between the US and its key trading partners and will provide critical updates as they emerge.

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